Agenda Item No. 6
CITY COUNCIL STAFF REPORT
TO: Honorable Mayor and City Council DATE: February 11, 2025 FROM: Matthew Bronson, City Manager
PREPARED BY: Nick Szamet, Administrative Services Director SUBJECT: FY 2024-25 Mid-Year Budget Review, General Fund Forecast, and Budget Policy Update
RECOMMENDATION
Receive FY 2024-25 Mid-Year Budget Review including the updated General Fund Financial Forecast; approve mid-year budget appropriation changes; and adopt the Resolution amending budget and financial policies.
BACKGROUND
Consistent with the Council’s adopted financial policies, this report provides an update on the City’s financial condition for FY 2024-25 and financial projections over the next five years. The forecast uses current budget data and economic indicators from national and local sources to establish projections for revenue and expenditure as well as illuminate any long-term challenges in balancing council priorities with available resources. The City presently has healthy reserves and relatively low operating costs when compared to neighboring jurisdictions along with having a strong “AA” credit rating. This is largely owing to Council’s commitment to prudent fiscal management and limited growth in the number of full-time City positions along with limiting escalations in wages and benefits during labor negotiations in 2024.
FY 2024-25 Mid-Year Financial Report
The General Fund is the City’s primary fund with taxes and major user fees funding basic public services. The Council adopted a FY 2024-25 General Fund budget of $18.6 million as included in Table 1.
Table 1
FY2024-25
GF Summary Budget Projected
Beginning Reserves 5,295,075 5,295,075
Revenues/Transfers In 18,674,000 18,592,000
Expenditures/Transfers Out 18,629,000 18,075,000
Surplus/(Deficit) 45,000 517,000
Ending Reserves 5,340,075 5,797,388
Reserves as Percent of Operating 30% 32%
Does not include midyear changes.
Staff Report: FY 2024-25 Mid-Year Budget Review, General Fund Forecast, and Budget Policies Page 2 February 11, 2025
General Fund Revenues
For FY 2024-25, the City’s top five revenues (sales tax, property tax, cannabis tax, service charges, and transient occupancy tax) comprise approximately 80% of total revenue. Total General Fund revenues are projected to end the fiscal year at approximately $18.5 million compared to $18.6 million budgeted. Total revenues are projected to be $82,000 less than budget with increased property tax revenues though decreased sales tax, transient occupancy tax and cannabis tax revenues from budgeted amounts. This mirrors countywide trends of slowing tax revenues particularly with sales tax. Projections are determined by historical trends, revenue received in the current year, anticipated business growth, as well as consulting with experts.
However, the diverse revenue composition of the city has continued to reinforce its financial position in a period of high volatility. Cannabis tax revenues hit the highest level reported during FY 2020-21 during the pandemic though cannabis tax revenues have declined since then. Sales tax revenues have also slowed over the past year with some rebounding expected in the last quarters of FY 2024-25. Table 2 highlights the General Fund’s top five budgeted revenues for the FY 2024-25 budget compared to projected revenue at year-end.
Table 2
Budget Projected Over/(Under) Percent of
Budget
Property Tax 5,949,000 6,152,000 203,000 103%
Sales Tax 6,170,000 5,812,000 (358,000) 94%
Cannabis Tax 1,224,000 1,070,000 (154,000) 87%
Transient Occupancy Tax 1,186,000 1,001,000 (185,000) 84% Franchise Fees 947,000 848,000 (99,000) 90%
Total 15,476,000 14,883,000 (593,000) 96%
Property Tax revenue is estimated to be higher than budgeted by 5% from the prior year.
Countywide, the Case-Schiller Index shows a nearly 3% jump in housing price index year-overyear. In Grover Beach, housing prices in December 2024 were 8% higher than a year ago with a median price of $904,000. Sales Tax revenue, as noted above, is estimated to be lower by 6% ($358,000) compared to the FY 2024-25 budgeted amount. This decline is largely driven by ongoing reallocation of taxes from county-pooled sales taxes to jurisdictions which have fulfillment centers located within their boundaries rather than allocation to the purchase destination.
Fulfillment centers operate as intermediaries between the seller and buyer and therefore are considered to have the retail transaction occur in the jurisdiction of the fulfillment center and thereby taxes are allocated to that jurisdiction.
Cannabis Tax revenue is estimated to be 13% lower than budgeted. This number is based on revenues received through December 31, 2024, along with expectations for activity in the second half of the fiscal year. However, this projected year-end amount of approximately $1.1 million is still within the range of initial cannabis tax estimates. Franchise fees are projected to be 11% lower than budgeted due to the delay in operation of the new transoceanic cable which will pay an annual fee of 100,000 once the cable commences operations. Lastly, Transient Occupancy Tax (TOT) is estimated to be 16% lower than budgeted given revised opening of the new hotel at 950 El Camino Real to FY 2025-26. However, total TOT revenues are estimated to be 5% higher than FY 2023-24 and are projected to total $1 million for the first time for the City.
Staff Report: FY 2024-25 Mid-Year Budget Review, General Fund Forecast, and Budget Policies Page 3 February 11, 2025
General Fund Expenditures
Table 3 below shows that overall General Fund expenditures are projected to end the year with savings of $554,000. The projected budget is based on the most current data and historical trends and could change with six months remaining in the fiscal year.
Table 3
Budget Projected Variance
Salaries and Benefits 9,581,000 9,174,000 (407,000)
Supplies and Services 7,846,000 7,612,000 (234,000)
Minor Capital 55,000 142,000 87,000
Debt Service 297,000 297,000 0
CIP/ERF Transfers Out 850,000 850,000 0
Total 18,629,000 18,075,000 (554,000)
Minor Capital is anticipated to exceed the budgeted amount by $87,000. This is mainly resulting from unanticipated vehicle maintenance expenses due to long-term staff absence and reliance on third-party repair of City vehicles. Salaries and Benefits are projected to be lower than anticipated due to the results of the labor contracts approved in summer 2024 compared with initial funding projections. Supplies and Services are seeing generally lower costs than anticipated given moderating inflation which has been factored into year-end projections.
Water Fund
The Water Fund is projected to run a deficit in FY 2024-25 which is largely a result of costs outpacing revenues after water rates were lowered in May 2024 and then subsequently repealed by passage of Measure G-24 in November 2024. Although many capital projects have been paused for the water system, the current rate structure approved in 2021 does not generate sufficient revenues from water rates for regular operational and maintenance costs with the Water Fund running a deficit of $800,000 in FY 2023-24. However, divestiture from the Central Coast Blue JPA provided an additional $719,696 from reimbursable property acquisition costs in FY 2024-25 somewhat mitigating the year-end projected deficit to $300,200 as represented in the table below.
Table 4 FY 2024-25 Budget FY 2024-25 Estimated
Revenue
Transfers In 25,000 25,000
Use of Money and Property 33,000 33,000
Revenue from Other Agencies - 719,696
Charges for Services 4,219,818 3,772,555
Total 4,277,818 4,550,251
Expense
Transfers Out 458,153 458,153
Salaries and Benefits 916,573 916,573
Supplies and Services 2,801,322 2,232,125
Minor Capital 40,000 40,000
Major Capital 25,000 1,103,601
Debt Service 281,293 100,000
Total 4,522,341 4,850,452
Surplus/(Deficit) (244,523) (300,201)
Staff Report: FY 2024-25 Mid-Year Budget Review, General Fund Forecast, and Budget Policies Page 4 February 11, 2025
Aside from a reservoir maintenance project undertaken in the prior year and completed in FY 2024-25, staff has largely suspended work on Water Fund capital projects to reduce impacts to reserves which stand at $4,047,221 as of the end of FY 2023-24. This information will be presented in further detail to the Council this spring as part of a water system update including the numerous affecting water supply conditions and water funding needs.
Wastewater Fund
The Wastewater Fund ended FY 2023-24 with a surplus of $368,616 to cash reserves to bring the reserve balance to $3,695,467. However, after sewer rates were repealed because of the passage of Measure G-24 in November 2024, staff projects a decline in revenues due to the reversion to the 2021 rate schedule with expenses for regular operations and maintenance outpacing revenues. As with the Water Fund, staff have largely curtailed capital work for the City’s wastewater system to minimize spending considering appreciating expenses. Ultimately, this results in a deferral of numerous wastewater infrastructure projects to improve the City’s wastewater system. This information will be presented in further detail to the Council on February 24 as part of a sewer system update.
Table 5
FY 2024-25 Budget FY 2024-25 Estimated
Revenue
Transfers In - -
Use of Money and Property 61,152 61,152
Revenue from Other Agencies - -
Charges for Services 1,799,618 1,375,671
Other - -
Total 1,860,770 1,436,823
Expense
Transfers Out 248,152 248,152
Salaries and Benefits 827,992 827,992
Supplies and Services 404,825 404,825
Minor Capital 200,000 200,000
Major Capital 755,000 755,000
Debt Service - -
Total 2,435,969 2,435,969
Surplus/(Deficit) (575,199) (999,147)
Carry-Over of Capital Project Funding and Authorized Appropriations Per Council’s adopted financial policies, any unused appropriations at the end of FY 2023-24 in active capital improvement projects and multi-year programs are reappropriated for continued use in FY 2024-25. Attachment 1 contains a listing of CIP carryover by governmental or enterprise funding. In total, the CIP carryover amount is $9,276,572. Some of the projects on the list have already been completed (Reservoir Maintenance) or are expecting completion by the end of the fiscal year FY 2024-25 (West Grand Ave Streetscape). However, the Sewer System Upgrades for Existing Flows project in the Wastewater Fund remains in pending status given a lack of resources to undertake the project.
Staff Report: FY 2024-25 Mid-Year Budget Review, General Fund Forecast, and Budget Policies Page 5 February 11, 2025
Requested Mid-Year Budget Appropriations and General Fund Impact With the fiscal year halfway completed, departments evaluated their current operations to identify unforeseen needs that may require additional funding. Staff is requesting the Council’s approval of mid-year budget appropriation changes for the General Fund totaling $245,041 along with appropriations requested as shown in detail in Attachment 2 and summarized in Table 6 below.
Table 6
Fund
General Fund 245,041
Water 111,000
Wastewater 68,500
Total 424,541
Department
Non-Departmental 57,500
Police 23,500
Public Works 343,541
Total 424,541
Table 7 below shows the General Fund impact of these recommended mid-year budget appropriations for FY 2024-25 along with the related changes in General Fund reserves from the carry-over of authorized appropriations. Mid-year Budget Augmentation Requests (BARs) were driven primarily by increasing costs for various programs. The largest BAR request is for replacement of a Public Works Maintenance Truck at an estimated cost of $100,000 spread across the General, Wastewater and Water Funds.
Table 7
General Fund Summary
FY 2024-
25 Budget
FY 2024-25
Projection
Variance
Amount
(A) (B) (A-B)
Revenues/Transfers In 18,674,000 18,592,000 82,000
Expenditures/Transfers Out 18,629,000 18,075,000 554,000 Surplus/(Deficit) 45,000 517,000 472,000
Beginning Reserves 8,803,000 8,803,000 0
FY2024 Carryover -3,366,000 -3,366,000 0
Wastewater Fund Repayment -142,000 -142,000 0
Midyear Requests -245,041 245,041
Ending Reserves 5,340,000 5,566,959 226,959
General Fund Financial Forecast
Economic Trends
The General Fund financial forecast is intended to be a tool which provides a rational forecast of where the City’s financial position will be in five years. Staff annually updates a five-year General Fund financial forecast to evaluate the City’s financial condition and help develop the City’s budget.
Staff Report: FY 2024-25 Mid-Year Budget Review, General Fund Forecast, and Budget Policies Page 6 February 11, 2025
The consensus for national economic outlook has been mixed since the November 2024 election.
On the one hand, the Federal Reserve has lowered interest rates. However, the pace of the rate decreases is less than initially signaled due to moderating but sticky inflation. United States GDP for the last quarter of 2024 grew at a pace of 2.3%. Mortgage rates remain high relative to previous years and countywide active listings for homes have risen year-over-year but remain low relative to pre-pandemic conditions. As with most of California, the small inventory of available housing keeps asset prices high in San Luis Obispo County.
Based on the latest sales tax forecast ending September 30, 2024, statewide taxable sales are down by 2% overall compared with the previous year and the Central Coast is seeing a similar rate of contraction. The City saw a 1.6% reduction in taxable sales within the same period. Sales tax for general retail and construction were up 4.2% and 11.2% respectively. As noted earlier in the staff report, sales tax has been hit with a reallocation of taxable sales from countywide pool which was down by 10.2%, which offsets gains in retail and construction. Statewide, housing sales jumped by 19.8% in 2024. On the Central Coast, sales increased by slightly higher margin of 20.5%.
City’s Five-Year Forecast
Grover Beach’s diversified revenue base made it well suited to weather the challenging economic conditions seen in FY 2023-24. Although headwinds persist in economic conditions nationally, Grover Beach is poised to open multiple new developments and public infrastructure in 2025 which should help with improving economic conditions. It is anticipated that property, sales, and transient occupancy tax will all see moderate growth in 2025. Table 8 below shows a summary of this updated five-year forecast with a more detailed version shown in Attachment 3.
Table 8
Overall, the forecast indicates the General Fund is in a positive position over the five-year period with a small projected surplus in future years with increasing reserves. The City forecasts revenue growth and has taken steps to maintain prudent reserves considering the ongoing uncertainties in the national economic picture. Below are some points regarding major revenue sources and guiding assumptions around the forecast:
• Sales Tax. For FY 2024-25, the forecast assumes that general sales tax revenues will increase slightly less than 2% with subsequent growth steady at 2% 2025-30. Significant increases in revenue in prior years have leveled off with the reduction in inflation and fiscal stimulus.
• Property Tax. Using prior year revenue estimates, this year’s forecast assumes that the City’s property tax revenues will increase by 5% year-over-year. Fiscal years 2025-26 and beyond also assume consistent growth of 5% per year.
FY2025-26 FY2026-27 FY2027-28 FY2028-29 FY2029-30
Budget Estimated Forecast Forecast Forecast Forecast Forecast Revenue 18,674,000 18,592,000 18,931,000 19,539,000 20,256,000 20,890,000 21,534,000 Expenses 18,629,000 18,075,000 18,655,000 19,255,000 19,877,000 20,522,000 21,190,000 Surplus/(Deficit) 45,000 271,959 276,000 284,000 379,000 368,000 344,000 Beginning Reserves 5,295,000 5,295,000 5,566,959 5,842,959 6,126,959 6,505,959 6,873,959 Ending Reserves 5,340,000 5,566,959 5,842,959 6,126,959 6,505,959 6,873,959 7,217,959 Reserves as percent of operating 30% 32% 33% 33% 34% 35% 36% FY2024-2025
General Fund
Staff Report: FY 2024-25 Mid-Year Budget Review, General Fund Forecast, and Budget Policies Page 7 February 11, 2025
• Cannabis Tax. The forecast revises cannabis tax revenue down from $1.2 million for FY 2024- 25, to just over $1 million, albeit a slight increase from in FY 2023-24. This forecast takes a conservative approach estimating additional revenues as fiscal years 2026-30 assume limited growth of 1% per year.
• Transient Occupancy Tax (TOT). In FY 2023-24, TOT revenues were $953,000. Staff projects increases in the following year due to the opening of the new hotel project, adding an additional 150 rooms of collectible TOT taxes commencing in FY 2025-26. Overall, TOT is projected to increase 3% each year beginning in 2025-26.
The presentation of the projected General Fund forecast represents the beginning of Council’s review and deliberation on the City’s budget which culminates in the Council’s adoption of the budget in June. Overall, projected revenues and future projected expenses prepare the City to meet operational and service needs and targeted capital projects without need to use reserves.
While reserves continue to be projected at healthy levels, staff recommends maintaining high level of reserves at this time to ensure sufficient liquidity given economic and financial uncertainties in 2025 along with the potential for unforeseen events.
Budget Policies Update
The City was awarded a Certificate of Excellence in Financial Reporting in FY 2022-23 by the Government Finance Officers Association and has again submitted for the same award in FY 2023-24. Maintaining this excellence requires review and update of budget and financial policies to better facilitate the allocation and administration of City resources. The City’s Financial and Budget Policies, included as Exhibit A in Attachment 4, provides for these recommended updates to policies as summarized below:
• General Fund Reserve minimum is increased to 25% based on a survey of current reserves held for cities of similar size. At present, the city has a minimum reserve of 15% of operating expenditure. Staff would note that this would be considered general or emergency reserves rather than reserves designated for equipment or facilities needs. • Equipment Replacement Fund is funded on an annual basis with allocation amount determined by the amount of depreciation for vehicle assets across the city in the current year and allocated across funds. By the end of the vehicle’s usable life via depreciation of the asset’s value, the replacement vehicle should be fully funded. • Establish Facility Reserve Fund to be funded on an annual basis with initial funding dependent on available surplus funds. Long-term, such a fund would be funded by apportionment of facility improvements or replacement costs over a number of years. • Budget transfer authority for department heads is amended to require City Manager approval when intradepartmental transfers cross categories of Supplies and Services and Salaries and Benefits.
• Capital Projects will require encumbrance in the year of allocation to establish life-ofproject budget amounts to facilitate carryover from year to year. • Grant applications require City Manager approval prior to submission of an application to the funding organization and subsequent approval of award by City Council. Prior to application, requesting departments should consider if funding will create ongoing financial commitment of City resources beyond funding provided by grant award.
Staff Report: FY 2024-25 Mid-Year Budget Review, General Fund Forecast, and Budget Policies Page 8 February 11, 2025
FISCAL IMPACT
The appropriations requested for the current FY 2024-25 midyear budget total $245,041 for the General Fund, $111,000 for the Water Fund, and $68,500 for the Wastewater Fund. Total FY 2022-23 carryover of special one-time authorized General Fund appropriations total $379,541.
CIP project carryovers from FY 2023-24 total $4,076,641 across governmental funds. Water and Wastewater appropriations will be paid from respective fund reserves at $2,023,819 and $3,176,112 each.
ALTERNATIVES
The Council has the following alternatives to consider:
1. Receive the FY 2024-25 Mid-Year Budget Review including the updated General Fund Financial Forecast; approve mid-year budget augmentations; adopt the resolution approve revised budget and financial policies; and provide input and direction to staff; or
2. Provide staff with alternate direction.
PUBLIC NOTIFICATION
The agenda was posted in accordance with the Brown Act.
Attachments
1. FY 2023-24 CIP Carryover
2. 2024-25 Mid-Year Budget Appropriation Changes
3. General Fund Five Year Financial Forecast
4. Resolution No. 25-__, Exhibit A: Budget and Financial Policy Revisions CIP Carryover
Description Project Carryover to FY2024-25
Ramona Garden Park Rehabililation 1259 70,379
2285 1,091,000
Major Streets: West Grand Ave Streetscape 2287 1,904,953 City Corp Yard Improvements 3002 124,591
Tyler Technologies Enterprise Resource Planning 6001 885,719 Total Governmental 4,076,641
Sewer System Upgrades for Existing Flows 5002 2,938,894 Front Street Lift Station Upgrades 5003 37,218
Sewer Upgrade for Existing Flows 5010 200,000
Total Wastewater 3,176,112
Regional Groundwater Sustainability (CCB) 4001 307,458
Water Main Zone Valves 4007 25,000
Water Meter Replacement Program 4270 300,000
Reservior Maintenance Program 4391 1,391,361
Total Water 2,023,819
Attachment 1
Attachment 2
Budget Augmentation Requests FY2024-25, Midyear
2/6/2025
Fund Fund Name Department Name Amount
101 General Fund Non-Departmental Emergency Medical Services Study 2,500 101 General Fund Non-Departmental West Grand Avenue Business Grants 45,000 101 General Fund Non-Departmental Workplace Violence Mitigation Projects 10,000 101 General Fund Police Drug Testing conducted by SLO Sheriff 2,000 101 General Fund Police Employee Training Needs 15,000
101 General Fund Police Vehicle Maintenance Needs 6,500 101 General Fund Public Works Backhoe Attachment for Tractor 7,500 101 General Fund Public Works Homeless Encampment Cleanup 40,000 101 General Fund Public Works Public Works Maintenance Truck (F-250) 50,000 101 General Fund Public Works Sidewalk Repair (Reimbursed by FEMA) 46,041 101 General Fund Public Works Vehicle Maintenance Needs 20,500 601 Water Public Works Chemicals for Water Treatment 60,000 601 Water Public Works Public Works Maintenance Truck (F-250) 25,000 601 Water Public Works Vehicle Maintenance Increase 26,000 603 Wastewater Public Works Dog Waste Bags 8,000
603 Wastewater Public Works Fats, Oil Grease (FOG) 15,000 603 Wastewater Public Works Public Works Maintenance Truck (F-250) 25,000 603 Wastewater Public Works Vehicle Maintenance Increase 10,500 603 Wastewater Public Works Weed Abatement for Fire Protection 10,000 Total 424,541
Fund
General Fund 245,041
Water 111,000
Wastewater 68,500
Total 424,541
Department
Non-Departmental 57,500
Police 23,500
Public Works 343,541
Total 424,541
City of Grover Beach
General Fund Forecast
2/6/2025
FY2022-23 FY2023-24 FY2025-26 FY2026-27 FY2027-28 FY2028-29 FY2029-30 Actual Actual Budget Estimated FY2025-26 FY2026-27 FY2027-28 FY2028-29 FY2029-30 REVENUES All figures rounded to nearest thousandth.
Property Tax 5,899,000 5,859,025 5,949,000 6,152,000 6,459,000 6,781,000 7,121,000 7,476,000 7,849,000 Sales Tax 5,993,000 5,733,274 6,170,000 5,812,000 5,884,000 5,987,000 6,109,000 6,224,000 6,328,000 Transient Occupancy Tax 924,162 953,685 1,186,000 1,001,000 1,331,000 1,371,000 1,512,000 1,557,000 1,604,000 Utility Users Tax 205,838 194,834 383,000 203,000 207,000 211,000 217,000 223,000 230,000 Cannabis Tax 1,198,037 1,066,489 1,224,000 1,070,000 1,070,000 1,081,000 1,092,000 1,103,000 1,114,000 Franchise Fees 713,394 718,907 947,000 848,000 965,000 1,023,000 1,043,000 1,064,000 1,085,000 From Other Governments 832,000 7,394,000 70,000 709,000 163,000 168,000 173,000 179,000 184,000 Licenses and Permits 424,554 514,705 306,000 535,000 546,000 557,000 568,000 579,000 590,000 Service Charges 953,107 730,264 963,000 759,000 759,000 767,000 782,000 798,000 814,000 Use of Money and Property 255,429 586,590 430,000 440,000 453,000 467,000 481,000 495,000 510,000 Fines and Penalties 42,857 37,838 21,000 38,000 38,000 38,000 38,000 38,000 38,000 Total Revenues 17,441,377 23,789,611 17,649,000 17,567,000 17,875,000 18,451,000 19,136,000 19,736,000 20,346,000
EXPENDITURES
Operating Programs 15,653,040 18,646,431 17,482,000 16,928,000 17,435,000 17,957,000 18,496,000 19,052,000 19,624,000 Salaries and Benefits 8,536,085 8,937,113 9,581,000 9,174,000 9,449,000 9,732,000 10,024,000 10,325,000 10,635,000 Supplies and Services 6,236,303 7,742,633 7,846,000 7,612,000 7,840,000 8,075,000 8,317,000 8,567,000 8,824,000 Minor Capital 880,652 1,966,686 55,000 142,000 146,000 150,000 155,000 160,000 165,000 Interdepartmental Charge 1 280 - - - - - - -
Other - 5,000,000 - - - - - - -
Major Capital - - - - - - - -
Debt Service 296,450 102,547 297,000 297,000 327,000 360,000 396,000 436,000 480,000 Total Expenditures 15,949,490 23,749,258 17,779,000 17,225,000 17,762,000 18,317,000 18,892,000 19,488,000 20,104,000
OTHER SOURCES & USES
Lease Financing 344,613 1,167,033 - - -
Transfers In (Cost Allocation) 546,000 599,750 605,000 605,000 623,000 642,000 661,000 681,000 701,000 Replacement Fund (Cost +General Allocation) 153,061 136,667 420,000 420,000 433,000 446,000 459,000 473,000 487,000 Transfers Out (CIP & ERF) (540,027) (628,987) (850,000) (850,000) (893,000) (938,000) (985,000) (1,034,000) (1,086,000) Total Sources and Uses 159,034 1,274,463 175,000 175,000 163,000 150,000 135,000 120,000 102,000 Midyear Adjustments (245,041)
Sources Over/(Under) Uses 1,650,921 1,314,815 45,000 271,959 276,000 284,000 379,000 368,000 344,000 Reserves, Start of Year 7,488,000 5,295,000 5,295,000 5,566,959 5,842,959 6,126,959 6,505,959 6,873,959 End of Year 7,488,213 8,803,000 5,340,000 5,566,959 5,842,959 6,126,959 6,505,959 6,873,959 7,217,959 CIP Carryover (2,356,500) (3,366,000)
Wastewater Fund Repayment (142,000) (142,000) (142,000) (142,000) (142,000) (178,000) (178,000) (178,000) (178,000) Reserves, End of Year 4,989,713 5,295,000 5,198,000 5,424,959 5,700,959 5,948,959 6,327,959 6,695,959 7,039,959 Reserve as Percent of Operating Programs 32% 28% 30% 32% 33% 33% 34% 35% 36% FY2024-25
Attachment 3
RESOLUTION NO. 25-
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF GROVER BEACH, CALIFORNIA UPDATING THE CITY’S FINANCIAL POLICIES
WHEREAS, the City Council and City staff are committed to improving the financial management of the City; and
WHEREAS, The City Council of the City of Grover Beach reviewed and considered amendments to the financial policies previously adopted; WHEREAS, updating the General Fund reserve minimum requirement to 25% will promote the City’s financial health; and
WHEREAS, updating the method for allocation to Equipment Replacement Fund and establishment of a Facility Reserve fund will fund capital assets in prudent manner; and WHEREAS, amending guidelines for carryover of budget amount from year to year will improve the City’s financial management; and
WHEREAS, establishing guidelines for grant awards for City Departments will improve financial management; and
WHEREAS, this resolution supersedes all previous resolutions for Financial Reserves and Guidelines.
NOW, THERFORE BE IT RESOLVED that the City Council of the City of Grover Beach does hereby approve and establish Financial Policies and provides guidelines for the use of the reserves as shown Exhibit A.
On motion by Council Member _____, seconded by Council Member ____, and on the following roll-call vote, to wit:
AYES: Council Members –
NOES: Council Members –
ABSENT: Council Members –
ABSTAIN: Council Members –
RECUSED: Council Members –
the foregoing Resolution was PASSED, APPROVED, and ADOPTED at a regular meeting of the City Council of the City of Grover Beach, California this 11th day of February 2025.
KASSI DEE, MAYOR
Attest:
WENDI B. SIMS, CITY CLERK
Attachment 4
Exhibit A
FINANCIAL POLICIES
ADOPTED BY THE CITY COUNCIL – RESOLUTION NO. 25-
The cornerstone of municipal financial management is a sound policy that sets forth guidelines in the areas of revenues, operating expenditures, investments, reserves, financial reporting, capital improvements, and budgeting. Elected officials and appointed staff are accountable for public funds and responsible for the wise management of municipal finances.
The community is entitled to reports that clearly communicate the financial health of the City. The following policies will guide and influence the financial management practices of the City of Grover Beach.
BUDGET & REPORTING
The City Manager will provide a biennial budget to the City Council for review and adoption by June 30th. In year two of the two-year cycle, the budget will be approved for second year appropriations but will not require a full budget hearing given passage of the budget in the preceding year.
The City's budgetary system will be integrated and compatible with the accounting system, and the City Budget will be prepared on a basis in conformance with Generally Accepted Accounting Principles (GAAP).
The Mid-Year Budget Review and Financial Forecast will be presented no later than the first regular City Council meeting in March of each year. The Mid-Year Budget Review and Financial Forecast will include the current status of revenue collections and budget expenditures, economic trends, and state budget deliberations, as well as any proposed amendments to the current year budget.
Annually, the City may seek the California Society of Municipal Finance Officers (CSMFO) award of Excellence for Municipal Budgeting. Annually, the City may seek the Government Finance Officers Association (GFOA) Certificate of Achievement for Distinguished Budget Presentation award.
Annually, the City's Comprehensive Annual Financial Report (CAFR) will be prepared by an independent auditor in accordance with Government Auditing Standards issued by the Comptroller General of the United States. Annually, the City may seek the GFOA Certificate of Achievement for Excellence in Financial Reporting.
RESOURCES
Resources are defined as revenues collected during one fiscal year, as well as resources carried over from prior years.
Revenues may be ongoing or one-time in nature, but resources from prior years are always one-time in nature. The following policies apply to resources:
• One-time resources will be used for one-time expenditures or enhancement of reserves rather than funding ongoing services.
• All revenue forecasts will reflect realistic assessments of future conditions. • Regular reports comparing actual to budgeted revenues will be prepared by City staff for the City Council. • All grant applications shall obtain City Manager’s authorization prior to submission of the grant application and acceptance of the award by City Council.
o All grants will be evaluated to determine the long-term operating and maintenance costs associated with the grant prior to acceptance of the grant award by City Council. o All grants are required to have expense and revenue appropriations in the budget for which they are planned.
EXPENDITURES
Expenditures are payments made to employees, vendors, or contractors supplying goods or services to the City, except as provided in GBMC Section 2107.1. All expenditures must be made consistent with appropriations approved by the City Council in the Annual Appropriation Resolution.
• Regular reports comparing budget expenditures to actual expenditures will be prepared by City staff for the City Council's information.
• When new operating programs or capital projects are proposed, staff will provide the City Council with an analysis of the one-time and ongoing costs associated with the program or project. • Except for initial expenditures for the creation of new programs or during periods of economic distress which result in reductions in local revenues or state funding for municipal activities, all ongoing costs for operating programs shall be paid from the ongoing revenues.
RESERVES
It shall be the City's policy to draw down reserves consistent with the following priorities:
• The use of reserves for one-time expenditures that generates ongoing cost savings or cost avoidance. • The use of reserves for one-time expenditures that generates ongoing revenue enhancements. • The use of reserves for a one-time expenditure that leverages the expenditure of significant public or private investment in the City by other entities.
• The use of reserves to offset shortfalls in the collection of revenues. • The use of reserves to offset unanticipated increases in expenditures for current programs or projects.
GENERAL FUND RESERVES
The General Fund Reserves for the City is established as a minimum of 25%. Reserves of 25% is comprised of a General Reserve and Emergency Reserve as described below:
GENERAL FUND-GENERAL RESERVE • The City hereby establishes a General Reserve of 15% of the current fiscal year's General Fund operating budget. The specific purpose of the General Reserve is to provide funding to meet operational appropriation requirements if the City experiences shortfalls in the collection of General Fund revenues or major unanticipated increases in expenditures.
• Any transfer of funds from the General Reserve may only be made upon City Council approval of an amendment to the Annual Appropriation Resolution.
GENERAL FUND-EMERGENCY RESERVE • The City hereby establishes an Emergency Reserve of not less than 10% of the General Fund operating budget.
This reserve is established for the purpose of providing emergency funding because of a declared emergency or to fund an unanticipated urgent event affecting or threatening the public health, safety, and welfare of the City of Grover Beach.
• Any transfer of funds from the Emergency Reserve may only be made upon City Council's approval of an amendment to the Annual Appropriation Resolution, after the City Council's finding that the guidelines established in the Resolution have been met.
EQUIPMENT REPLACEMENT FUND (ERF) • Equipment Replacement Fund will reserve funding to establish an ongoing source to accumulate capital for the long-term replacement of the City’s capital equipment including vehicles, trucks, and any piece of equipment of depreciable value. Allocations to the ERF will be made by using the total amount of annual depreciation for an asset’s value. When an asset’s value is fully depreciated, it should be replaced.
FACILITY RESERVE FUND • Facility Reserve Fund will be established and funded annually by the discretion of the City Manager. Annual appropriations to the Facility Reserve Fund should be guided by the total anticipated cost of facility or facility improvements spread out by the number of years before the facility or facility improvements are made.
WATER ENTERPRISE FUND-GENERAL RESERVE • The City hereby establishes a General Reserve of not less than 10% of the current fiscal year Water Fund operating budget. The Water Fund's General Reserve should be increased to an amount greater than 10% when economic conditions warrant. The specific purpose of the General Reserve is to provide funding to meet operational appropriation requirements in the event that the City experiences shortfalls in the collection of Water Fund revenues or unanticipated increases in expenditures. • Any transfer of funds from the Water Fund's General Reserve may only be made upon City Council approval of an amendment to the Annual Appropriation Resolution.
WASTEWATER ENTERPRISE FUND-GENERAL RESERVE • The City hereby establishes a General Reserve of not less than 10% of the current fiscal year Wastewater Fund operating budget. The Wastewater Fund Reserves should be increased to an amount greater than 10% when economic conditions warrant. The specific purpose of the General Reserve is to provide funding to meet operation appropriation requirements in the event the City experiences shortfalls in the collection of Wastewater Fund revenues or unanticipated increases in expenditures. • Any transfer of funds from the Wastewater Fund's General Reserve may only be made upon City Council approval of an amendment to the Annual Appropriation Resolution.
APPROPRIATION TRANSFER AUTHORITY
The following criteria establish the transfer authority for appropriations as set forth in the fiscal year budget. • Transfers between line items in the same program may be made by department heads so long as they do not cross budget categories.
• Transfers between programs or categories in the same fund may be made by department heads with City Manager approval.
• Transfer between department budgets within the same fund may only be made by the City Council. • Transfers between different funds may only be made by the City Council. • Transfers to or from employee services line items may be made by the City Manager.
CAPITAL IMPROVEMENT PROGRAM
Annually, City staff will propose a Capital Improvement Program covering the subsequent five fiscal years. The plan will recommend specific funding of projects for the next three years and identify projects for further consideration. The Capital Improvement Program will include a listing of projects for further consideration by the City Council. Such projects will be those which are determined to merit further study, but lacking funding sources. Capital improvements will include Facilities and Infrastructure improvements which are valued over $50,000.
Capital Improvement Program projects will be reviewed to determine the best method of financing the project. City Council will determine whether the project is funded on a "pay as you go" basis or a debt instrument. The City will continue imposing development impact fees which ensure that a new development pays its fair share of the increased service capacity.
Funds allocated to capital projects will be encumbered for the life-of-project (across fiscal years) until fully expended or project is finished. Any funds remaining at the end of the project will be unencumbered and returned to origin fund as unassigned balance.
FISCAL MANAGEMENT
It is the City's policy to minimize the subsidization by the general taxpayer of the costs of services provided to the public which are of specific benefit, rather than general benefit. The City Council shall annually consider establishing specific cost-recovery policies related to such costs to be reflected in the Master Fee Schedule.
Consistent with the State Constitution, charges for services will not exceed the cost reasonably borne to deliver those services. Costs reasonably borne may include direct and in-direct costs, as well as reasonable reserves or amortization of equipment associated with the provision of the services.
The City will annually review the Master Fee Schedule to ensure that each user fee is reflective of its intended costrecovery percentage and will revise the fees as needed or revise the cost-recovery percentage.
The City will maintain water and sewer rate structures which are adequate to ensure that these enterprise funds remain firmly and separately self-supporting, including the cost of operation, infrastructure maintenance and replacement, indirect cost recovery, and debt service.
Whenever required by bond indentures, the City will determine whether debt service coverage ratios are being met.
Whenever coverage ratios are not being met, staff will recommend rate increases or expenditure reductions or some combination of the two, in order to meet coverage ratios.
An independent firm of certified public accountants will perform an annual financial and compliance audit according to General Accepted Auditing Standards (GAAS) which will be incorporated into the Comprehensive Annual Financial Report.
INVESTMENTS
The City will continue to have a written investment policy approved by City Council resolution annually. The policy for investments in priority order are safety, liquidity and yield.
The City Council will receive reports on the cash position and performance of City investments at a minimum of a quarterly basis.
CAPITAL ASSETS
Future maintenance needs for all new capital facilities will be fully costed out. All equipment and facility maintenance needs for the next five years will be projected and updated annually. All assets will be maintained at a level that protects capital investment and minimizes future maintenance costs.